TIDMNSF
RNS Number : 4116Y
Non-Standard Finance PLC
03 March 2017
Non-Standard Finance plc
('Non-Standard Finance', 'NSF', the 'Company' or the
'Group')
Unaudited Full Year Results to 31 December 2016
3 March 2017
Highlights
-- Normalised revenue(1) of GBP81.1m (2015: GBP14.7m); reported
revenue of GBP72.8m (2015: GBP9.2m)
-- Normalised operating profit(2) of GBP13.8m (2015: loss of
GBP0.5m); reported operating loss of GBP5.2m (2015: loss of
GBP10.0m)
-- On a pro forma basis3, normalised revenue was GBP94.7m (2015:
n/a); normalised operating profit was GBP18.7m (2015: n/a);
normalised operating profit before temporary agent commission
was GBP20.5m (2015: n/a)
-- Reported loss before tax of GBP9.3m (2015: GBP16.1m); reported
loss after tax GBP8.0m (2015: GBP13.1m)
-- Strong loan book growth across all divisions since acquisition
to reach GBP164.6m before fair value adjustments (GBP180.4m
after fair value adjustments) at 31 December 2016 (2015: GBP28.0m
before fair value adjustments; GBP28.4m after fair value adjustments)
-- Recommended final dividend of 0.9p per share (2015: nil) making
a total dividend for the year of 1.2p per share (2015: nil)
-- Current trading: we have made a good start to the year with
all three business divisions performing well
Context for results
-- The Group listed on 19 February 2015 and acquired Loans at
Home on 4 August 2015 and Everyday Loans, including Trusttwo,
on 13 April 2016.
-- The 2016 reported results include a full year contribution
from Loans at Home, a full year of central costs and just
over eight months of trading from Everyday Loans, including
Trusttwo.
-- The 2015 reported results include the trading of Loans at
Home for approximately five months and the central costs of
the business since incorporation on 8 July 2014.
-- Reported results include fair value adjustments, amortisation
of acquired intangibles and exceptional items relating to
the acquisitions. Normalised results are presented to demonstrate
Group performance before these items.
-- The Group also presents 2016 pro forma normalised results
in order to show the results of the Group as if it had acquired
Everyday Loans, including Trusttwo, on 1 January 2016.
-- There are no comparative pro forma figures for 2015 as on
completion of the acquisition of Loans at Home on 4 August
2015, the Group adopted a more timely approach to recognising
impairment. The Group has concluded that any benefit derived
from re-stating the results of Loans at Home from 1 January
to 3 August 2015 to reflect this more prudent approach would
be more than outweighed by the cost of producing such results.
(1) Adjusted to exclude fair value adjustments
(2) Adjusted to exclude fair value adjustments, amortisation of
acquired intangibles and exceptional items
(3) Assuming Everyday Loans (including Trusttwo) was acquired on
1 January 2016
Financial summary
Year ended 31 December 2016 2016 2016
Normalised(1) Fair value Reported
adjustments,
amortisation
of acquired
intangibles
and exceptional
items
GBP'000 GBP'000 GBP'000
------------------------------------ --------------- ----------------- ----------
Revenue 81,099 (8,342) 72,757
Impairments (23,201) - (23,201)
Admin expenses (42,303) (10,714) (53,017)
Temporary additional commission(2) (1,771) - (1,771)
=============== ================= ==========
Operating profit (loss) 13,824 (19,056) (5,232)
Exceptional items - (626) (626)
--------------- ----------------- ----------
Profit (loss) before interest
and tax 13,824 (19,682) (5,838)
Finance (cost) income (3,484) - (3,484)
--------------- ----------------- ----------
Profit (loss) before tax 10,340 (19,682) (9,342)
Taxation (2,278) 3,622 1,344
=============== ================= ==========
Profit (loss) after tax 8,062 (16,060) (7,998)
=============== ================= ==========
Earnings (loss) per share(3) 2.62p (2.60)p
Dividend per share 1.20p 1.20p
===================================== =============== ================= ==========
Period ended 31 December 2015 2015 2015
Normalised(1) Fair value Reported
adjustments,
amortisation
of acquired
intangibles
and exceptional
items
GBP'000 GBP'000 GBP'000
------------------------------------ --------- --------------- ----------------- ----------
Revenue 14,657 (5,456) 9,201
Impairments (3,858) - (3,858)
Admin expenses (11,340) (4,030) (15,370)
Temporary additional commission(2) - - -
=============== ================= ==========
Operating profit (loss) (541) (9,486) (10,027)
Exceptional items - (6,135) (6,135)
--------------- ----------------- ----------
Profit (loss) before interest
and tax (541) (15,621) (16,162)
Finance (cost) income 70 - 70
--------------- ----------------- ----------
Profit (loss) before tax (471) (15,621) (16,092)
Taxation 1,271 1,751 3,022
=============== ================= ==========
Profit (loss) after tax 800 (13,870) (13,070)
=============== ================= ==========
Earnings (loss) per share(3) 1.30p (21.25)p
Dividend per share nil nil
=============================================== =============== ================= ==========
(1) Adjusted to exclude fair value adjustments, amortisation of
acquired intangibles and exceptional items
2 When a new home credit agent agrees to provide lending and
collection services to the Group, we may decide to offer a limited
period of additional commission whilst the agent builds up a
critical mass of active loan customers
3 Basic and diluted earnings (loss) per share based on the
weighted average number of shares in issue of 307,315,588 (2015:
61,502,789)
Group pro forma results
In order to set out clearly the underlying performance of the
Group, the table below provides an analysis of the pro forma
normalised results for the enlarged Group for the twelve month
period to 31 December 2016. The pro forma results include Everyday
Loans and Trusttwo for the twelve months ended 31 December
2016.
Year ended 31 Dec 16 Everyday Loans Trusttwo Central NSF plc
Pro forma normalised(4) Loans at Home costs Pro forma
normalised
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- --------- -------- ------------
Revenue 50,088 42,170 2,416 - 94,674
Impairments (10,034) (15,313) (358) - (25,705)
--------- --------- --------- -------- ------------
Revenue less impairments 40,054 26,857 2,058 - 68,969
Admin expenses (20,631) (23,229) (1,402) (3,257) (48,519)
Temporary additional
commission - (1,771) - - (1,771)
========= ========= ========= ======== ============
Operating profit 19,423 1,857 656 (3,257) 18,679
Finance cost (4,720) (323) (316) (264) (5,623)
--------- --------- --------- -------- ------------
Profit before tax 14,703 1,534 340 (3,521) 13,056
Taxation (2,941) (54) (68) 374 (2,688)
--------- --------- --------- -------- ------------
Profit after tax 11,762 1,480 272 (3,147) 10,368
========= ========= ========= ======== ============
Pro forma normalised
earnings per share 3.37p
Dividend per share 1.20p
========================== ========= ========= ========= ======== ============
(4) Assuming Everyday Loans (including Trusttwo) was acquired on
1 January 2016 and adjusted to exclude fair value adjustments,
amortisation of acquired intangibles and exceptional items. Note
there are no comparative figures for 2015 (see Context for Results
on page 1).
John van Kuffeler, Group Chief Executive Officer, said
"The past year has been transformational for the Group: we
completed the acquisition of businesses representing 80% of the
current Group and have become a significant player in the market
with a combined loan book of GBP165m (before fair value
adjustments), serving 137,000 customers through a network of almost
90 branches across the UK.
"For 2017, our strategy remains focused on delivering revenue
and profit growth. We have made a good start to the year with all
three business divisions performing well. Our confidence underpins
a recommended final dividend of 0.9p per share making 1.2p for the
year as a whole (2015: GBPnil)."
- Ends -
Interviews with John van Kuffeler, Group Chief Executive Officer
and Nick Teunon, Chief Financial Officer
Interviews with John van Kuffeler and Nick Teunon will be
available as video and text from 7.00 am on 3 March 2017 on the
Group's website: www.nonstandardfinance.com.
Analyst meeting, webcast, dial-in and conference call details
for 3 March 2017
There will be an analyst meeting at 9.00 am for invited UK-based
analysts at the offices of Bell Pottinger, 6th Floor Holborn Gate,
330 High Holborn, London, WC1V 7QD. The meeting will be
simultaneously broadcast via webcast and conference call. To watch
the live webcast, please register for access by visiting the
Group's website www.nonstandardfinance.com. Details for the dial-in
facility are given below. A copy of the webcast and slide
presentation given at the meeting will be available on the Group's
website later today.
Dial-in details to listen to the analyst presentation at 9.00
am, 3 March 2017
08.50 am Please call + 4420 3059 8125
Title NSF Full Year Results
9.00 am Meeting starts
All times are Greenwich Mean Time (GMT).
For more information:
Non-Standard Finance plc
John van Kuffeler, Group Chief Executive
Nick Teunon, Chief Financial Officer & Company
Secretary
Peter Reynolds, Director, IR and Communications +44 (0) 20 3772
c/o Bell Pottinger 2500
Bell Pottinger
Dan de Belder
Aarti Iyer +44 (0) 20 3772
Molly Stewart 2500
About Non-Standard Finance
Non-Standard Finance plc is listed on the main market of the
London Stock Exchange (ticker: NSF) and was established in 2014 to
acquire and grow businesses in the UK's non-standard consumer
finance sector. Under the direction of its highly experienced main
board, the Company has acquired a sustainable group of businesses
offering credit to the c.10-12 million UK adults who are not served
by (or choose not to use) mainstream financial institutions. Its
three business areas are: unsecured branch-based loans,
home-collected credit and guaranteed loans. Each business now has
access to increased levels of funding and has benefited from
stronger management controls; has refined its product pricing in a
number of areas; has introduced new compliance protocols; and is
investing in new IT infrastructure and systems. These changes have
been implemented to balance the delivery of improved customer
outcomes with the generation of substantial returns for
shareholders. In the year ended 31 December 2016, the Group
generated reported revenue of GBP72.6m; pro forma normalised
revenue of GBP94.7m; reported operating loss of GBP5.2m and pro
forma normalised operating profit, before temporary agent
commission, of GBP20.5m. As at 31 December 2016, the Group had a
combined loan book of GBP165m (before fair value adjustments).
Group Chief Executive's Report
Results
The past year has been transformational for the Group with the
completion of the acquisition of Everyday Loans and Trusttwo, new
bank facilities in place and a carefully planned programme of
investment in all three businesses.
Against this background, I am pleased to report normalised
revenue of GBP81.1m (2015: GBP14.7m) and normalised operating
profit of GBP13.8m (2015: loss of GBP0.5m). Reported revenue after
fair value adjustments, was GBP72.6m (2015: GBP9.2m) and reported
loss before interest and tax was GBP5.8m (2015: loss of GBP16.2m).
The Group's reported results include just over eight months'
performance from Everyday Loans and Trusttwo which were acquired in
April 2016 and that together represent approximately 80% of the
Group's net loan book (before fair value adjustments). The reported
results are also significantly affected by temporary additional
commission paid to newly signed-up agents at Loans at Home, fair
value adjustments and the amortisation of acquired intangibles.
To provide investors with a more representative picture of the
Group's underlying performance, we have also produced pro forma
normalised numbers, as if Everyday Loans and Trusttwo had been
acquired at the start of the year and before the impact of
fair-value adjustments, the amortisation of acquired intangibles
and exceptional items. There are no comparable pro forma numbers
for 2015 as the Group believes that any benefit derived from
re-stating the results of Loans at Home from 1 January to 3 August
2015 would be more than outweighed by the cost of producing such
results.
Pro forma normalised revenues and operating profit were GBP94.7m
and GBP18.7m respectively, and pro forma normalised earnings per
share was 3.37p (reported loss per share was 2.60p). I am pleased
that the Board is recommending an inaugural final dividend of 0.9p
making a total of 1.2p for the year.
The size of our combined net loan book across all businesses as
at 31 December 2016 was GBP164.6m before any fair value adjustment
(2015: GBP28.0m) and GBP180.4m after fair value adjustments (2015:
GBP28.4m) representing a 489% increase from 31 December 2015, of
which a 368% increase relates to the acquisition of Everyday
Loans.
Everyday Loans
The acquisition of Everyday Loans completed on 13 April 2016.
Since then, the business has performed strongly with reported
operating profit of GBP6.8m (2015: n/a), reported normalised
operating profit of GBP14.8m (2015: n/a) and pro forma normalised
operating profit of GBP19.4m (2015: n/a). We have expanded the
branch network, with five new branches opened since completion, as
well as broadened the product offering to include loans at higher
APRs. We also adjusted the pricing of certain products in
accordance with a new and refined credit scorecard resulting in an
increased yield on new business volumes from an average of 52% at
the time of acquisition to 57% in December 2016.
Loans at Home
I am pleased to report loan book growth of 19% at Loans at Home
in 2016, a year of transformation for the business, including a new
management team and investment in a programme of significant
growth. This included the recruitment of 25% more agents; a
significant upgrade to the regulatory and compliance functions; the
roll-out of new technology; and the testing of a number of
alternate growth strategies. Reported operating profit was GBP1.4m,
reported normalised operating profit was GBP1.9m, both of which are
after deducting temporary additional agent commissions of GBP1.8m
that were paid to newly recruited agents while they establish a
critical mass of customers (for the period 4 August 2015 to 31
December 2015: operating profit of GBP2.1m). While our programme of
investment held back Loans at Home's profit performance in 2016, we
have taken a number of steps to ensure that we are well-placed to
deliver a significant increase in profitability in 2017.
Trusttwo
Following its acquisition and recognising its strong growth
potential, we established Trusttwo as a separate entity with its
own management team and profit and loss responsibility. This had an
immediate and positive impact on performance and Trusttwo delivered
reported and reported normalised operating profit of GBP0.5m (2015:
n/a) and, on a pro forma basis, an operating profit of GBP0.7m
(2015: n/a).
Strategy
We remain focused on serving the needs of consumers who are
unable or unwilling to borrow from mainstream institutions.
Everything we have seen to-date has confirmed that the size of this
opportunity remains large and we remain on-course to achieve our
target of 20% loan book growth across the Group as a whole and a
20% return on assets in each of our operating businesses in the
medium-term.
In executing our plans, we seek to strike an appropriate balance
between short-term growth and profitability versus that over a
longer period. Having completed our initial development phase, we
have refined our business strategy that now comprises the following
three strategic pillars:
-- Being a leader in our chosen markets
-- Investing in our core assets:
-- distribution networks
-- people
-- technology
-- brands
-- Acting responsibly
1. Being a leader in each of our chosen segments of the
non-standard finance market
Whilst we continue to monitor developments across a number of
sub-segments of the UK's non-standard finance market, our current
focus is on branch-based, unsecured lending, home-collected credit
and guaranteed loans.
In each segment we have a leading market position with
significant potential for future growth:
Branch-based lending - Everyday Loans is already the market
leader in medium-term, unsecured branch-based lending to the credit
impaired and we believe that the quality and breadth of its
products are unrivalled.
Home credit - Loans at Home is ranked third in the market by
numbers of customers and self-employed agents. Whilst we have
achieved a great deal since acquiring Loans at Home in August 2015,
we still have much work to do. Upgrading our systems and moving to
hand-held technology is just part of our plan to become best-in
class.
Guaranteed loans - Trusttwo is one of a number of 'tier two'
players in terms of scale. Having launched in 2014 it has already
grown fast with a loan book of GBP8.8m at 31 December 2016.
However, we are now in a position to grow much bigger and we plan
to do it quickly. Our goal is to become the clear number two behind
the market leader, an objective we think is eminently
achievable.
2. Investing in our core assets
The nature of our business means that, other than the loans we
make to customers, our core assets tend to be intangible and
include things such as distribution networks, people and
brands.
Distribution networks - As face-to-face contact is at the heart
of our lending process (and also collections in the case of home
credit), ensuring that we maximise our customer reach is critical
for long-term success. We need to be close to our customers and to
our potential customers. We also need to be close to our agents,
reducing the travel time required to meet with a manager each week
can make a meaningful difference to operating performance. We
already have almost 90 locations across the UK but believe there is
scope to increase this significantly over the next few years,
particularly at Everyday Loans that plans to open 12 new branches
in 2017 at an incremental cost of approximately GBP1m in the
current year.
People - The interaction between our representatives and our
customers is at the heart of our business model. Investing in
processes and procedures, training and a highly targeted incentive
plan that rewards both financial results and our target behaviours
that are focused on delivering positive customer outcomes, is
central to our long-term success. We are determined to ensure that
'doing the right thing' is an ethos that runs deep through all
areas of our business, not just because regulations demand it, but
because it makes good business sense.
Technology - Whilst the business model in both branch-based
lending and home credit is founded upon face-to-face contact,
technology plays a significant role in enabling these businesses to
operate effectively. Effective data management is key, both for
managing and monitoring customer performance, but also in helping
us optimise business performance through highly granular management
information. During 2016 Everyday Loans moved to a new data centre
and we are making good progress on transforming our set-up at Loans
at Home, including the introduction of handheld technology for our
agent network.
Brands - the significant developments in technology have shifted
the way that consumers research and buy a variety of different
products, including financial services. While our two largest
businesses are heavily reliant on face-to-face contact, ensuring we
can attract sufficient numbers of applicants, an increasing number
of which are coming through digital channels, means that a
multi-channel approach to marketing and brand support is a key area
of focus.
We firmly believe that diligent execution of each of these
elements will fuel significant growth. Whilst we remain focused on
the considerable opportunities for organic growth, we are also
committed to seeking value accretive acquisitions in our chosen
business segments, or complementary business segments, should
suitable opportunities arise.
3. Acting responsibly
The history and culture of each of our operating companies,
together with the experience of our Board and senior management
team, have resulted in a clear recognition that how we behave as a
business is instrumental in both safeguarding the value already
created, and also propagating the creation of value in the future.
As a result, we consider how our behaviour and conduct might impact
all of our key stakeholders whether they be customers, staff,
self-employed agents, suppliers, our environment or the communities
where we have a physical presence. In addition to key customer
metrics that are captured as part of our performance measurement,
we have identified a series of behaviours that we see as being key
to us achieving our objectives:
-- Doing the right thing: we recognise our collective responsibility
for delivering great outcomes for our customers. We don't
cut corners and always seek the path that is right before
the path that is easy.
-- Shared purpose: we have clear strategic and operational
goals and expect all of our representatives to understand
and share in that vision.
-- Integrity: we expect our people to respect colleagues and
other key stakeholders and to do what we say we will do.
-- Teamwork: our businesses are complex and involve many different
elements that each represent an important part of our overall
business process. By working together we are likely to solve
problems more effectively than trying to do things on our
own.
-- Communication: we are well-informed and believe it's our
duty to speak up when we disagree, or believe something
is not right; we celebrate success and don't blame others
when something goes wrong, always learning from our mistakes.
-- Entrepreneurial: we use our initiative and are prepared
to try new things so we can perform better and be the best
we can be.
Financing
During the year the Group drew down on its new debt facilities
and has total committed facilities of GBP95m with an option to
increase this, with the agreement of our lending banks, to GBP120m.
The facilities, which are both for a three-year term, expire in
December 2018 and June 2019 respectively and the Group is actively
reviewing a variety of financing options that could underpin the
Group's long-term growth plans. As at 31 December 2016 the Group
had gross borrowings of GBP87.3m and cash at bank of GBP5.2m.
Regulation
Everyday Loans, including Trusttwo, received full authorisation
from the Financial Conduct Authority (FCA) on 20 June 2016.
Along with its major competitors, Loans at Home is currently
operating under an interim consumer credit permission from the FCA,
having submitted its application for full authorisation in June
2015. Whilst we remain in close contact with the FCA, we have
received no indication on when we might receive full authorisation
but believe that approval is likely to be given at the same time as
the other major listed home credit providers.
As part of its scheduled review of changes made to the
regulation of high cost short-term credit, the FCA has extended its
review to include other forms of high cost credit, including
home-collected credit and guaranteed loans. We welcome this review
and have submitted our own views to the FCA that we hope will
provide stakeholders with a better understanding of both the
benefits as well as the risks involved in serving this large and
important segment of the UK's non-standard finance market. We
believe that the FCA's approach and framework for the regulation of
consumer credit is working well and while there is always room for
improvement, we believe the current regime has the controls needed
to maintain high standards and minimise the risk of customer
detriment as a result of poor conduct.
A summary of some of the recent regulatory developments that may
have a bearing on the Group's businesses is set out in the
appendix.
Final dividend
Having declared a half year dividend of 0.3p per share (2015:
nil), the Board is delighted to recommend a maiden final dividend
of 0.9p per share (2015: nil) making a total dividend for the year
of 1.2p per share (2015: nil). This represents a pay-out ratio of
36% based on pro forma normalised earnings.
The dividend policy objective is to pay-out a dividend equal to
50% of normalised annual post-tax earnings.
If approved by shareholders at the forthcoming Annual General
Meeting on 9 May 2017, the final dividend of 0.9p per share (2015:
nil) will be payable on 20 June 2017 to those shareholders on the
register of shareholders on 16 May 2017 (the 'Record Date').
Current trading and outlook
We have made a good start to the year with each of our business
divisions performing well.
We are continuing our programme of investment in 2017 across
each of our three businesses. At Everyday Loans we plan to open up
to 12 new branches in the current year as well as continue to
invest in new product development. As our largest business, we
continue to believe that its market position, proven infrastructure
and business model will deliver substantial revenue and profit
growth.
We continue to see significant potential at Loans at Home and
having made a considerable investment in 2016, we plan to maximise
profit performance in 2017.
At Trusttwo, with the management and requisite infrastructure
now in place we plan to drive increased volumes through a series of
fully-integrated marketing campaigns using third-party brokers and
direct marketing initiatives. We are also starting to see the
benefit of leveraging our branch network as a unique and additional
source of customer traffic.
Despite macroeconomic uncertainties and the effects of inflation
starting to come through, we believe that our customers are
well-placed to manage as they have benefited from an improvement in
their incomes in the last few years and, compared to the more
financially-stretched prime and near-prime borrowers, have had
relatively limited access to credit.
We have a strong balance sheet with excellent positions in our
chosen segments and are therefore well-placed to take advantage of
the considerable opportunities that exist in all three business
areas. We remain optimistic about the Group's prospects.
John van Kuffeler
Group Chief Executive
3 March 2017
Financial review
In addition to reported figures, we have provided pro forma
figures to illustrate what revenues, profits and other key
performance metrics would have been had Everyday Loans, including
Trusttwo, been acquired at the beginning of 2016. We have therefore
analysed performance both before and after temporary additional
commission paid to newly signed-up agents at Loans at Home, fair
value adjustments, the amortisation of acquired intangibles and
exceptional items. There are no directly comparable pro forma
figures for 2015 as the Company listed in February 2015 as a cash
shell and had no revenue in the first seven months of 2015.
Group reported results
The reported Group results for the year ended 31 December 2016
include a full period of Loans at Home which was acquired on 4
August 2015 and approximately eight months' performance from
Everyday Loans (including Trusttwo) which was acquired on 13 April
2016. The prior year reported figure included approximately five
months' performance from Loans at Home.
Year ended 31 December 2016 2016 2016
Normalised Fair value Reported
adjustments,
amortisation
of acquired
intangibles
and exceptional
items
GBP'000 GBP'000 GBP'000
--------------------------------- ------------ ----------------- ----------
Revenue 81,099 (8,342) 72,587
Impairments (23,201) - (23,201)
Admin expenses (42,303) (10,714) (53,017)
Temporary additional commission (1,771) - (1,771)
============ ================= ==========
Operating profit (loss) 13,824 (19,056) (5,232)
Exceptional items - (626) (626)
------------ ----------------- ----------
Profit (loss) before interest
and tax 13,824 (19,682) (5,838)
Finance (cost) income (3,484) - (3,484)
------------ ----------------- ----------
Profit (loss) before tax 10,340 (19,682) (9,342)
Taxation (2,278) 3,622 1,344
============ ================= ==========
Profit (loss) after tax 8,062 (16,060) (7,998)
============ ================= ==========
Earnings (loss) per share 2.62p (2.60)p
Dividend per share 1.20p 1.20p
================================== ============ ================= ==========
Period ended 31 December 2015 2015 2015
Normalised Fair value Reported
adjustments,
amortisation
of acquired
intangibles
and exceptional
items
GBP'000 GBP'000 GBP'000
--------------------------------- --------- ------------ ----------------- ----------
Revenue 14,657 (5,456) 9,201
Impairments (3,858) - (3,858)
Admin expenses (11,340) (4,030) (15,370)
Temporary additional commission - - -
============ ================= ==========
Operating profit (loss) (541) (9,486) (10,027)
Exceptional items - (6,135) (6,135)
------------ ----------------- ----------
Profit (loss) before interest
and tax (541) (15,621) (16,162)
Finance (cost) income 70 - 70
------------ ----------------- ----------
Profit (loss) before tax (471) (15,621) (16,092)
Taxation 1,271 1,751 3,022
============ ================= ==========
Profit (loss) after tax 800 (13,870) (13,070)
============ ================= ==========
Earnings (loss) per share 1.30p (21.25)p
Dividend per share nil nil
============================================ ============ ================= ==========
Normalised revenue was GBP81.1m (2015: GBP14.7m) reflecting a
full period of Loans at Home and approximately eight months' of
Everyday Loans whilst the prior year included just five months' of
Loans at Home. This fed through into a normalised operating profit
of GBP13.8m (2015: loss of GBP0.5m), which has been reduced by
temporary additional commission paid to newly signed-up agents of
GBP1.8m (2015: GBPnil). Normalised operating profit is then
adjusted by fair value adjustments and amortisation of acquired
intangibles totalling GBP19.1m (2015: GBP9.5m). As a result, the
reported operating loss was GBP5.2m (2015: loss of GBP10.0m).
Exceptional costs of GBP0.6m (2015: GBP6.1m) and finance costs of
GBP3.5m (2015: finance income of GBP0.1m) resulted in a reported
loss before tax of GBP9.3m (2015: loss of GBP16.1m). A tax credit
of GBP1.3m (2015: GBP3.0m) meant that the loss after tax was
GBP8.0m (2015: GBP13.1m) equating to a reported loss per share of
2.60p (2015: loss per share of 21.25p).
A more detailed review of each of the operating businesses is
outlined below showing results on a pro forma as well as a reported
basis.
Divisional overview
Everyday Loans
Everyday Loans remains the largest branch-based lender in the
UK's non-standard finance sector with 41 branches. By tailoring
customers' requirements through a broad range of loan products,
Everyday Loans is able to meet the needs of a large number of
customers.
Having announced the proposed acquisition of Everyday Loans on 4
December 2015, the transaction completed on 13 April 2016,
following receipt of the requisite approval from the FCA.
At 31 December 2016, Everyday Loans had over 39,600 active
customers across the UK and has delivered strong growth in all key
financial metrics since acquisition in April 2016. With loans
carrying APRs ranging from 24% to 299%, loan amounts ranging from
GBP1,000 to GBP15,000 and length of loan ranging from one year to
five years, we believe that Everyday Loans is able to serve an
unrivalled breadth of UK customers. Another key differentiator from
many competitors is that while the vast majority of customers make
their initial contact remotely, either direct or through brokers,
we always seek to meet the customer face-to-face in one of our
branches so that we can complete our underwriting process. We
believe that whilst expensive to deliver, our branch-based approach
creates a more bespoke and thorough lending experience which
benefits our customers as well as the business by enabling us to
make better lending decisions.
Having received the full FCA permissions in June 2016, we
embarked on a planned programme of investment across the business
with a clear focus on:
-- extending our customer reac
-- broadening our product range; and
-- ensuring we remain fully compliant with our regulatory obligations.
Specific achievements included: expanding the branch network
with five new openings during the year; extending the customer
offering with the launch of a new self-employed product; we
successfully migrated our back-office technology to a new platform
without incident; we began working with a number of new brokers and
lead generators that are already proving to be very successful and
have continued to invest in staff training and compliance to ensure
that we remain at the vanguard of our industry.
We continue to believe that the branch-based approach provides
Everyday Loans with a significant advantage over other more remote
lenders in being able to properly assess both affordability and
propensity to pay and so whilst customers with lower credit scores
do carry more risk, at higher APRs the risk-adjusted return remains
commercially attractive.
Reported results
Normalised revenue was GBP37.1m (2015: n/a) and reflected the
inclusion of Everyday Loans from 13 April 2016. Fair value
adjustments of GBP7.9m (2015: n/a) were due to the fair value
unwind of the acquired loan portfolio and resulted in reported
revenue of GBP29.2m (2015: n/a). Impairments were GBP7.6m (2015:
n/a) while administrative expenses were GBP14.7m (2015: n/a)
resulting in total normalised operating profit of GBP14.8m (2015:
n/a) and reported operating profit of GBP6.8m (2015: n/a).
Being close to our customers is one factor that influences our
ability to convert leads into underwritten loans and since
completing the acquisition in April 2016 we have continued to
invest in expanding our branch network. Whilst many applications
represent duplicates or are rejected because data has been entered
incorrectly, from over 860,000 applications processed in 2016, we
completed 26,535 loans with an average loan size of GBP3,842.
2016
2016 Fair value 2016 2015
Year ended 31 December Normalised(5) Adjustments Reported Reported
GBP000 GBP000 GBP000 GBP000
-------------------------- --------------- ------------- ---------- ----------
Revenue 37,080 (7,916) 29,164 -
Impairments (7,645) - (7,645) -
=============== ============= ========== ==========
Revenue less impairments 29,435 (7,916) 21,519
Admin expenses (14,671) - (14,671) -
=============== ============= ========== ==========
Operating profit 14,764 (7,916) 6,848 -
Finance cost (2,699) - (2,699) -
=============== ============= ========== ==========
Profit before tax 12,065 (7,916) 4,149 -
Taxation (2,540) 1,504 (1,036) -
=============== ============= ========== ==========
Profit after tax 9,525 (6,412) 3,113 -
=============== ============= ========== ==========
(5) Reported figures, adjusted to exclude fair value
adjustments
Pro forma results
Pro forma normalised revenue (twelve months of Everyday Loans)
was GBP50.1m driven by further growth in the loan book that as at
31 December 2016 had reached GBP122.4m, thanks to continued strong
demand for the Group's products as well as the benefit of an
increase in yield from a combination of new pricing as well as a
shift in the product mix. Impairments increased slightly from the
half year to 20.0% of revenue reflecting the strong loan book
growth and increased volumes from customers with lower credit
scores (although this was more than offset by an increase in yield
on new business volumes that increased from 51.9% in March 2016 to
56.9% in December 2016). Administrative expenses were GBP20.6m
resulting in pro forma normalised operating profit of GBP19.4m.
Year ended 31 December 2016
Pro forma
Normalised(6)
GBP'000
Revenue 50,088
Impairments (10,034)
===============
Revenue less impairments 40,054
Admin expenses (20,631)
===============
Operating profit 19,423
Finance cost (4,720)
===============
Profit before tax 14,703
Taxation (2,941)
===============
Profit after tax 11,762
===============
Key Performance Indicators(7)
Number of branches 41
Period end customer numbers (000) 39.6
Period end loan book (GBPm)(8) 122.4
Average loan book (GBPm)(9) 113.4
Revenue yield (%)(10) 44.2
Risk adjusted margin (%)(11) 35.3
Impairments/revenue (%) 20.0
Operating profit margin (%) 38.8
Return on asset (%)(12) 17.1
=================================== ===============
(6) Assuming Everyday Loans was acquired on 1 January 2016 and
adjusted to exclude fair value adjustments
(7) Key performance indicators have been provided using pro
forma normalised data only as reported data only includes
performance metrics from the date of acquisition.
(8) Excluding fair value adjustments
(9) Excluding fair value adjustments based on a twelve month
average
(10) Revenue as a percentage of average loan book excluding fair
value adjustments (twelve month average)
(11) Revenue less impairments as a percentage of average loan
book excluding fair value adjustments (twelve month average)
(12) Operating profit as a percentage of average loan book
excluding fair value adjustments (twelve month average)
Plans for 2017
We remain focused on expanding our branch network and continuing
to broaden our product range.
Having opened five new branches since April 2016, we are keeping
up the momentum in 2017 with ten new branches already underway and
plans for a further two new branches that are also expected to open
by the year end. Whilst this increased investment is expected to
reduce operating profit by approximately GBP1m in the current year,
it will underpin strong earnings growth in future years as the new
branches reach maturity in terms of customers and loan book.
In terms of product development, our new 'selfy' loan has been
designed to reach the large and growing proportion of the workforce
that are now self-employed and which, due to the variability of
their income, are often excluded by other lenders. Whilst
encouraged by some early success, we are continuing to test the
appeal and viability of the product before deciding to commit
further resources to it. Separately, we submitted an application to
the FCA for a high-cost, short-term credit licence in December 2016
and if successful, plan to offer shorter-term loans to our
customers through the branch network. Currently, our shortest term
loan is for 24-months and we believe that a number of potential
customers would prefer to borrow over a shorter period. This
extension to our product range will complement our existing
offering and improve our service to customers.
Loans at Home
Loans at Home is the third largest home credit business in the
UK with almost 94,000 customers and a net loan book (before fair
value adjustments) at 31 December 2016 of GBP33.4m, an increase of
19% over the prior year (2015: GBP28.0m).
Strong growth in the number of self-employed agents drove faster
than expected growth in customer numbers that in turn prompted a
spike in impairments in the first half of 2016. Having tested a
number of alternate growth strategies, we implemented the following
measures to reduce impairments and improve operating performance:
we simplified the management structure; increased our focus on the
performance of recently joined agents; deployed a more
sophisticated scorecard; and consolidated a number of sub-scale
agencies. These measures improved the quality of the loan book and
the rate of impairment began to decline. Total customer numbers
consequently came down in the second half and new loans written
improved in terms of quality, albeit on lower volumes.
Having assembled the new management team and instituted the
transformation of Loans at Home, Mark Bardsley stepped down as CEO
of Loans at Home in January 2017 and David Thompson, a seasoned
home credit executive who had already been running the Loans at
Home network, has stepped in to the role.
Reported results
Normalised revenue was GBP42.2m (2015: GBP14.7m), reflecting the
inclusion of Loans at Home for a full period. Reported revenue was
GBP0.4m lower due to the unwinding of the fair value adjustment
made to the loan book at completion in 2015 (2015: a charge of
GBP5.5m).
Normalised operating profit of GBP1.8m (for the period 4 August
2015 to 31 December 2015: GBP2.1m) was after deducting
administration costs of GBP23.2m which included GBP7.9m of agent
collection commissions and temporary additional agent commission of
GBP1.8m (2015: GBPnil). Temporary additional agent commission was
higher than expected following our decision to focus on adding
higher quality customers that meant it took longer for a number of
newly appointed agents to reach critical mass with their rounds and
so temporary commissions were extended for a further period.
Reported operating profit was GBP1.4m (2015: operating loss of
GBP3.9m) reflecting the cost of temporary additional commission
paid to agents and the fair value adjustment to revenue outlined
above.
The first part of our technology investment is now complete: our
new handheld collections application (app) has been rolled-out
across the entire network and has been warmly welcomed by all
agents. This automation has significantly reduced the complexity of
administering the collections process and is also providing
accurate management information in a fraction of the time and at
lower cost.
Year ended 31 December 2016 2016 2016
Normalised(13) Fair value Reported
Adjustments
GBP000 GBP000 GBP000
================================ ================ ============= ==========
Revenue 42,170 (426) 41,744
Impairments (15,313) - (15,313)
================ ============= ==========
Revenue less impairments 26,857 (426) 26,431
Admin expenses (23,229) - (23,229)
Temporary additional
commission (1,771) - (1,771)
Exceptional items - - -
================ ============= ==========
Operating profit 1,857 (426) 1,431
Finance cost (323) - (323)
================ ============= ==========
Profit before tax 1,534 (426) 1,108
Taxation (54) 81 27
================ ============= ==========
Profit after tax 1,480 (345) 1,135
================ ============= ==========
Key Performance Indicators(14)
Period end agent numbers 785
Period end number of
offices 47
Period end customer
numbers (000) 93.6
Period end loan book
(GBPm) 33.4
Average loan book (GBPm) 27.6
Revenue yield (%) 152.8
Risk adjusted margin
(%) 97.3
Impairments/revenue
(%) 36.3
Operating profit margin
(%) 4.4
Return on asset (%)(13) 6.7
================================= ================ ============= ==========
(13) Normalised to exclude fair value adjustments related to the
acquisition and subsequent restructuring of Loans at Home.
(14) All definitions are as per above.
Period ended 31 December 2015 2015 2015
Normalised Fair value Reported
Adjustments
GBP000 GBP000 GBP000
================================ ============ ============= ==========
Revenue 14,657 (5,456) 9,201
Impairments (3,858) - (3,858)
============ ============= ==========
Revenue less impairments 10,799 (5,456) 5,343
Admin expenses (8,656) - (8,656)
Temporary additional
commission - - -
Exceptional items - (593) (593)
============ ============= ==========
Operating profit/(loss) 2,143 (6,049) (3,906)
Finance cost - - -
============ ============= ==========
Profit/(loss) before
tax 2,143 (6,049) (3,906)
Taxation 1,271 - 1,271
============ ============= ==========
Profit/(loss) after
tax 3,414 (6,049) (2,635)
============ ============= ==========
Key Performance Indicators(15)
Period end agent numbers 630
Period end number of
offices 41
Period end customer
numbers (000) 92.0
Period end loan book
(GBPm) 28.0
Average loan book (GBPm) n/a
Revenue yield (%) n/a
Risk adjusted margin
(%) n/a
Impairments/revenue
(%) 26.3
Operating profit margin
(%) 14.6
Return on asset (%)(13) n/a
================================= ============ ============= ==========
(15) All definitions are as per above. Certain Key Performance
Indicators for 2015 are shown as not applicable as Loans at Home
was acquired on 4 August 2015 and reported data therefore includes
less than a full year's performance.
Note there are no comparative figures for 2015 (see Context for
Results on page 1).
Plans for 2017
Our focus for 2017 is to consolidate the changes already made,
complete the roll-out and then embed our new technology as planned
so that we can focus the business on what it does best: lending and
collecting responsibly to deliver excellent customer outcomes. We
are continuing to invest in our people with improved training
programmes for both staff and self-employed agents and we hope to
become the home credit firm that is recognised as being the
preferred place to work. Whilst we continue to be opportunistic and
selective regarding the hiring of experienced agents, particularly
now that our largest competitor is substantially reducing the scale
of its agent network, we expect temporary agent commission costs to
fall in the current year.
We will continue to improve the quality of our customer base and
aim to reduce further the level of impairments as a percentage of
revenue and whilst this may result in more moderate loan book
growth in the current year versus 2016, our objective will be to
deliver healthy revenue and profit growth.
Trusttwo
Whilst a relatively new segment of the unsecured credit market,
the value of outstanding unsecured guaranteed loans in the UK has
grown rapidly and is estimated to have reached approximately
GBP350m in 2015. We believe that there is a significant opportunity
for Trusttwo to become the clear number two player behind the
market leader and during 2016 we laid the foundations to realise
the full potential of this exciting business model.
Following its acquisition in April 2016, we established Trusttwo
as a stand-alone business and hired a Managing Director who has
full profit and loss responsibility. Having obtained its full FCA
permissions in June 2016, we established a robust infrastructure
through the recruitment of more staff and the redesign of a number
of core processes. This doubled conversion rates so that the
business now represents a viable and attractive alternative for
financial brokers that are keen to offer customers an alternative
solution to the market leader. Whilst this required meaningful
investment, we began to see solid month-on-month revenue growth and
expect this to increase further once our infrastructure is fully in
place.
Reported results
As at 31 December 2016 the business had a net loan book of
GBP8.8m delivering reported revenue of GBP1.8m (2015: n/a) and
operating profit of GBP0.5m (2015: n/a) reflecting the performance
in the eight month period since acquisition.
Year ended 31 December 2016 2015
Reported Reported
GBP000 GBP000
Revenue 1,849 -
Impairments (243)
========== ==========
Revenue less cost of sales 1,606
Admin expenses (1,146) -
========== ==========
Operating profit 460 -
Finance cost (198) -
---------- ----------
Profit before tax 262 -
Taxation (58) -
========== ==========
Profit after tax 204 -
========== ==========
Pro forma results
On a pro forma basis, Trusttwo generated pro forma revenue of
GBP2.4m (2015: n/a) and pro forma operating profit of GBP0.7m
(2015: n/a). Administration costs almost doubled in the second half
versus the first half as we invested in building the infrastructure
(people, systems and processes) to be able to grow revenues
substantially in 2017 once all elements of our customer experience
are working as planned.
Year ended 31 December 2016
Pro forma(16)
GBP000
=================================== ===============
Revenue 2,416
Impairments (358)
=================
Revenue less impairments 2,058
Admin expenses (1,402)
=================
Operating profit 656
Finance cost (316)
-----------------
Profit before tax 340
Taxation (68)
=================
Profit after tax 272
=================
Key Performance Indicators(17)
Period end customer numbers (000) 3.3
Period end loan book (GBPm) 8.8
Average loan book (GBPm) 7.7
Revenue yield (%) 31.9
Risk adjusted margin (%) 26.7
Impairment/revenue (%) 14.8
Operating profit margin (%) 27.2
Return on asset(17) (%) 8.5
=================================== =================
(16) Assuming Trusttwo was acquired on 1 January 2016
(17) Key performance indicators have been provided using pro
forma normalised data only as reported data only includes
performance metrics from the date of acquisition. All definitions
are as per above.
Plans for 2017
We will soon be launching a much improved website that we expect
will attract more customers as well as improve conversion rates
further. The new site will also expand our existing product
parameters thereby increasing our appeal to potential customers
that are looking to tailor any offer to best suit their needs. The
launch will be accompanied by a fully-integrated marketing campaign
across all key channels including online, social as well as through
referrals from the Everyday Loans branch network. So far we have
been pleased with the positive response from staff in the branches
and hope to make further progress on increasing the number of
referrals and conversion rates during 2017. Financial brokers
represent a significant opportunity for Trusttwo and we have been
leveraging Everyday Loans' excellent relationships as well as
building new ones with additional brokers and lead generators for
whom the Trusttwo proposition is more attractive.
With our infrastructure and funding in place, we believe that
there is a substantial opportunity for Trusttwo to become the clear
number two in the UK's guaranteed loans market.
Central costs
Year ended 31 December 2016 2016 2016
Normalised(18) Amortisation Reported
of acquired
intangibles
and exceptional
items
GBP000 GBP000 GBP000
======================== ================ ================= ==========
Revenue - - -
Admin expenses (3,257) (10,714) (13,971)
Exceptional items - (626) (626)
Operating loss (3,257) (11,340) (14,597)
Finance cost (264) - (264)
---------------- ----------------- ----------
Loss before tax (3,521) (11,340) (14,861)
Taxation 374 2,037 2,411
================ ================= ==========
Loss after tax (3,147) (9,303) (12,450)
================ ================= ==========
(18) Adjusted to exclude the amortisation of acquired
intangibles related to the acquisition of Loans at Home and
Everyday Loans and exceptional items
Period ended 31 December 2015 2015 2015
Normalised(19) Amortisation Reported
of acquired
intangibles
and exceptional
items
GBP000 GBP000 GBP000
========================== ================ ================= ==========
Revenue - - -
Admin expenses (2,684) (4,030) (6,714)
Exceptional items - (5,542) (5,542)
Operating loss (2,684) (9,572) (12,256)
Finance income 70 - 70
---------------- ----------------- ----------
Loss before tax (2,614) (9,572) (12,186)
Taxation - 1,751 1,751
================ ================= ==========
Loss after tax (2,614) (7,821) (10,435)
================ ================= ==========
(19) Adjusted to exclude the amortisation of acquired
intangibles related to the acquisition of Loans at Home and
Everyday Loans and exceptional items
Normalised administrative expenses, including head office costs
and other expenses associated with the running of the plc (before
the amortisation of acquired intangibles and exceptional items)
were GBP3.3m (2015: GBP2.7m). The amortisation of intangible assets
acquired as part of the acquisition of Loans at Home and Everyday
Loans was GBP10.7m (2015: GBP4.0m) reflecting a full period of
amortisation for Loans at Home and eight months for Everyday Loans.
An exceptional item charge of GBP0.6m was incurred in the year and
related to stamp duty paid at completion on the acquisition of
Everyday Loans (2015: GBP5.5m). The charge in the prior year
related to acquisition-related expenses. Finance costs of GBP0.3m
(2015: finance income of GBP0.1m) were also incurred in the first
half and related to the non-utilisation fee on the Everyday Loans
bank facility prior to the drawdown at completion.
Principal risks
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance and that
could cause reported and pro forma results to differ materially
from expected and historical results
The principal risks facing the Group, together with the Group's
risk management process in relation to these risks, are unchanged
from those reported in the Group's Annual Report for the period
ended 31 December 2015 (which is available for download at
www.nonstandardfinance.com), save that we have also now included an
additional risk relating to reputation. The principal risks relate
to the following areas:
-- Conduct - risk of poor outcomes for our customers or other
key stakeholders as a result of the Group's actions;
-- Regulation - risk through changes to regulations or a failure
to comply with existing rules and regulations;
-- Credit - risk of loss through poor underwriting or a diminution
in the credit quality of the Group's customers;
-- Business strategy and operations - risk that the Group fails
to execute its plan as expected or that the outcome from executing
such strategy is not as planned;
-- Liquidity - while the Group is well-capitalised and has secured
committed debt facilities of GBP95m with an opportunity to
increase, with the consent of the banks, to GBP120m, prevailing
uncertainty in global financial markets following the UK's
decision to leave the European Union means that there is a
risk that the Group may be unable to secure sufficient finance
in the future to execute its long-term business strategy;
and
-- Reputation - a failure to manage one or more of the risks
above may damage the reputation of the Group or any of its
subsidiaries that in turn may materially impact the future
operational and/or financial performance of the Group.
On behalf of the Board of Directors
Nick Teunon
Chief Financial Officer
3 March 2017
Consolidated statement of comprehensive income
For the year ended 31 December 2016
Before
fair value Fair value
adjustments, adjustments,
amortisation amortisation
of acquired of acquired
intangibles intangibles
and exceptional and exceptional Year ended
items items 31 Dec
Note GBP'000 GBP'000 2016 GBP'000
--------------------------------- ---- ---------------- ---------------- -------------
Revenue 2 81,099 (8,342) 72,757
Impairment/cost of sales (23,201) - (23,201)
Administrative expenses (44,074) (10,714) (54,788)
---------------- ---------------- -------------
Operating profit/(loss) 3 13,824 (19,056) (5,232)
Exceptional items - (626) (626)
---------------- ---------------- -------------
Profit/(loss) on ordinary
activities before interest
and tax 13,824 (19,682) (5,858)
Finance (cost)/income (3,484) - (3,484)
---------------- ---------------- -------------
Profit/(loss) on ordinary
activities before tax 10,340 (19,682) (9,342)
Tax on profit/(loss) on ordinary
activities 5 (2,278) 3,622 1,344
---------------- ---------------- -------------
Profit/(loss) for the year 8,062 (16,060) (7,998)
--------------------------------- ---- ---------------- ---------------- -------------
Total comprehensive loss
for the Period (7,998)
--------------------------------- ---- ---------------- ---------------- -------------
Loss attributable to:
* Owners of the parent (7,998)
* Non-controlling interests -
Loss per share
Year ended
31 Dec
2016
Note Pence
------------------ ---- ----------
Basic and diluted 6 (2.60)
------------------ ---- ----------
There are no recognised gains or losses other than disclosed
above and there have been no discontinued activities in the
year.
For the period ended 31 December 2015
Before
fair value Fair value
adjustments, adjustments,
amortisation amortisation
of acquired of acquired Period
intangibles intangibles from incorporation
and exceptional and exceptional to 31 Dec
items items 2015
Note GBP'000 GBP'000 GBP'000
----------------------------------- ---- ---------------- ---------------- -------------------
Revenue 2 14,657 (5,456) 9,201
Impairment/cost of sales (3,858) - (3,858)
Administrative expenses (11,340) (4,030) (15,370)
---------------- ---------------- -------------------
Operating loss 3 (541) (9,486) (10,027)
Exceptional items - (6,135) (6,135)
---------------- ---------------- -------------------
Loss on ordinary activities
before interest and tax (541) (15,621) (16,162)
Finance income 70 - 70
---------------- ---------------- -------------------
Loss on ordinary activities
before tax (471) (15,621) (16,092)
Tax on loss on ordinary activities 5 1,271 1,751 3,022
---------------- ---------------- -------------------
Profit/(loss) for the year 800 (13,870) (13,070)
----------------------------------- ---- ---------------- ---------------- -------------------
Total comprehensive loss
for the year (13,070)
----------------------------------- ---- ---------------- ---------------- -------------------
Loss attributable to:
* Owners of the parent (13,070)
* Non-controlling interests -
Loss per share
Period from
incorporation
to 31 Dec
2015
Note Pence
------------------ ---- --------------
Basic and diluted 6 (21.25)
------------------ ---- --------------
Consolidated statement of financial position
As at 31 December 2016
31 Dec 31 Dec
2016 2015
Note GBP'000 GBP'000
---------------------------------- ---- -------- --------
ASSETS
Non-current assets
Goodwill 8 132,070 40,176
Intangible assets 9 17,412 14,119
Property, plant and equipment 5,459 1,718
---------------------------------- ---- -------- --------
154,941 56,013
Current assets
Inventories - 3
Amounts receivable from customers 10 180,413 28,412
Trade and other receivables 10,753 10,275
Cash and cash equivalents 5,215 7,320
---------------------------------- ---- -------- --------
196,381 46,010
---------------------------------- ---- -------- --------
Total assets 351,322 102,023
---------------------------------- ---- -------- --------
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables 8,146 13,803
Total current liabilities 8,146 13,803
---------------------------------- ---- -------- --------
Non-current liabilities
Deferred tax liability 11 6,793 3,057
Bank loans 87,300 -
Total non-current liabilities 94,093 3,057
---------------------------------- ---- -------- --------
Equity
Share capital 13 15,852 5,264
Share premium 13 254,995 92,714
Retained loss (22,019) (13,070)
---------------------------------- ---- -------- --------
248,828 84,908
Non-controlling interests 255 255
---------------------------------- ---- -------- --------
Total equity 249,083 85,163
---------------------------------- ---- -------- --------
Total equity and liabilities 351,322 102,023
---------------------------------- ---- -------- --------
Consolidated statement of changes in equity
For the year ended 31 December 2016
Share Share Retained Non-controlling
capital premium loss interest Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- -------- -------- --------------- --------
At incorporation - - - - -
Total comprehensive loss for
the period - - (13,070) - (13,070)
Transactions with owners, recorded
directly in equity:
Issue of shares 5,264 92,714 - 255 98,233
------------------------------------- -------- -------- -------- --------------- --------
At 31 December 2015 5,264 92,714 (13,070) 255 85,163
Total comprehensive loss for
the year - - (7,998) - (7,998)
Transactions with owners, recorded
directly in equity:
Dividends paid - - (951) - (951)
Issue of shares 10,588 162,281 - - 172,869
------------------------------------- -------- -------- -------- --------------- --------
At 31 December 2016 15,852 254,995 (22,019) 255 249,083
------------------------------------- -------- -------- -------- --------------- --------
Consolidated statement of cash flows
For the year ended 31 December 2016
Period from
incorporation
Year ended to
31 Dec 2016 31 Dec 2015
Note GBP'000 GBP'000
--------------------------------------- ---- ------------ --------------
Net cash used in operating activities 14 (23,541) (9,532)
Cash flows from investing activities
Purchase of property, plant and
equipment (4,327) (341)
Acquisition of subsidiary (230,784) (81,111)
--------------------------------------- ---- ------------ --------------
Net cash used in investing activities (235,111) (81,452)
--------------------------------------- ---- ------------ --------------
Cash flows from financing activities
Finance (cost)/income (3,484) 70
Debt raising 87,300 -
Dividends paid (951) -
Proceeds from sale of property,
plant and equipment 813 -
Proceeds from issue of share capital 172,869 98,234
--------------------------------------- ---- ------------ --------------
Net cash from financing activities 256,547 98,304
--------------------------------------- ---- ------------ --------------
Net (decrease)/increase in cash
and cash equivalents (2,105) 7,320
Cash and cash equivalents at beginning
of year 7,320 -
--------------------------------------- ---- ------------ --------------
Cash and cash equivalents at end
of year 5,215 7,320
--------------------------------------- ---- ------------ --------------
As at 31 December 2016 the Group had cash of GBP5.2m (2015:
GBP7.3m) with debt of GBP87.3m (2015: GBPnil). This cash balance
reflects the acquisition of Everyday Loans (including Trusttwo) and
associated fundraising for the acquisition together with the
trading activities of the Group during the year . The year-end cash
balance also reflects the seasonal peak in lending that takes place
in December at Loans at Home which reduces cash at 31 December, but
subsequently gets collected in the weeks following the year
end.
Notes to the preliminary announcement
1. Basis of preparation
The preliminary announcement has been prepared in accordance
with the Listing Rules of the FCA and is based on the 2016
consolidated financial statements which have been prepared under
IFRS as adopted by the European and those parts of the Companies
Act 2006 applicable to companies reporting under IFRS.
The accounting policies applied in preparing the preliminary
announcement are consistent with those used in preparing the
statutory financial statements for the period ended 31 December
2016. The preliminary announcement has been prepared on a going
concern basis consistent with the basis of preparation of the
statutory financial statements for the period ended 31 December
2016.
The preliminary announcement does not constitute the statutory
financial statements of the Group within the meaning of Section 434
of the Companies Act 2006.
The audit of the statutory financial statements for the period
ended 31 December 2016 is not yet complete. These accounts will be
finalised on the basis of the financial information presented in
this preliminary announcement and will be delivered to the
Registrar of Companies following the Company's annual general
meeting.
The preliminary announcement has been agreed with the Company's
auditor for release.
2. Revenue
Revenue is recognised by applying the EIR to the carrying value
of a loan. The EIR is calculated at inception and represents the
rate which exactly discounts the future contractual cash receipts
from a loan to the amount of cash advanced under the loan, plus
directly attributable issue costs. In addition, the EIR takes
account of customers repaying early.
Period from
incorporation
Year ended to
31 Dec 2016 31 Dec 2015
GBP'000 GBP'000
--------------------------------------------- ------------ --------------
Interest income 81,099 14,657
Fair value unwind on acquired loan portfolio (8,342) (5,456)
--------------------------------------------- ------------ --------------
Total revenue 72,757 9,201
--------------------------------------------- ------------ --------------
3. Operating profit/(loss) for the year is stated after
charging/(crediting):
Period from
incorporation
Year ended to
31 Dec 2016 31 Dec 2015
GBP'000 GBP'000
---------------------------------------------- ------------ --------------
Depreciation of property, plant and equipment 690 198
Amortisation of intangible assets 10,714 4,030
Staff costs 20,345 5,076
Rentals under operating leases 1,110 136
(Profit)/loss on sale of property, plant
and equipment (363) 51
Rentals received under operating leases (28) (53)
---------------------------------------------- ------------ --------------
4. Segment information
Management has determined the operating segments by considering
the financial and operational information that is reported
internally to the chief operating decision-maker, the Board of
Directors, by management. For management purposes, the Group is
currently organised into four operating segments Central (head
office activities), Loans at Home (home credit), Everyday Loans
(branch based lending) and Trusttwo (guaranteed lending). The
Group's operations are all located in the United Kingdom and all
revenue is attributable to customers in the United Kingdom.
Everyday Loans
Year ended 31 December Loans at Home Trusttwo(1) Central 2016 Total
2016 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ -------- -------- ----------- ----------- --------------- ----------
Interest income 37,080 42,170 1,849 - 81,099
Fair value unwind on acquired
loan portfolio (7,916) (426) - - (8,342)
------------------------------ -------- -------- ----------- ----------- --------------- ----------
Total revenue 29,164 41,744 1,849 - 72,757
Operating profit/(loss)
before amortisation 6,848 1,431 460 (3,257) 5,482
Amortisation of intangible
assets - - - (10,714) (10,714)
------------------------------ -------- -------- ----------- ----------- --------------- ----------
Operating profit/(loss)
before exceptional items 6,848 1,431 460 (13,971) (5,232)
Exceptional items - - - (626) (626)
Finance cost (2,699) (323) (198) (264) (3,484)
Profit/(loss) before taxation 4,149 1,108 262 (14,861) (9,342)
Taxation (1,036) 27 (58) 2,411 1,344
------------------------------ -------- -------- ----------- ----------- --------------- ----------
Profit/(loss) for the year 3,113 1,135 204 (12,450) (7,998)
------------------------------ -------- -------- ----------- ----------- --------------- ----------
Everyday Loans Consolidation
Loans at Home Trusttwo(1) Central adjustments(2) 2016 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Total assets 136,362 40,258 8,783 274,883 (108,964) 351,322
Total liabilities (98,589) (14,239) - (1,595) 12,184 (102,239)
------------------------------ -------- -------- ----------- ----------- --------------- ----------
Net assets 37,773 26,019 8,783 273,288 (96,780) 249,083
------------------------------ -------- -------- ----------- ----------- --------------- ----------
Capital expenditure 1,764 2,386 - 177 - 4,327
Depreciation of plant,
property and equipment 226 425 - 39 - 690
Amortisation of intangible
assets - - - 10,714 - 10,714
------------------------------ -------- -------- ----------- ----------- --------------- ----------
(1) Trusttwo is supported by the infrastructure of Everyday
Loans and only the net loan book and profit and loss is reported to
the board separately and has therefore been disclosed above.
(2) Consolidation adjustments include the acquisition
intangibles of GBP17.4m (2015: GBP14.1m), good will of GBP132.1m
(2015: GBP40.2m), deferred tax liability of GBP6.8m (2015:
GBP3.1m), fair value of loan book of GBP15.8m (2015: GBP0.4m) and
the elimination of intra group balances.
All inter-segment transactions are transacted on an arm's length
basis. The results of each segment have been prepared using
accounting policies consistent with those of the Group as a
whole.
Everyday Loans
Period ended 31 December Loans at Home Trusttwo Central 2015 Total
2015 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- -------- -------- -------- ------------- ----------
Interest income - 14,657 - - 14,657
Fair value unwind on acquired
loan portfolio - (5,456) - - (5,456)
------------------------------------- -------- -------- -------- -------- ------------- ----------
Total revenue - 9,201 - - 9,201
Operating loss before amortisation - (3,313) - (2,684) (5,997)
Amortisation of intangible
assets - - - (4,030) (4,030)
------------------------------------- -------- -------- -------- -------- ------------- ----------
Operating loss before exceptional
items - (3,313) - (6,714) (10,027)
Transaction costs - - - (5,542) (5,542)
Redundancy costs - (593) - - (593)
Finance cost - - - (3) (3)
Finance income - - - 73 73
------------------------------------- -------- -------- -------- -------- ------------- ----------
Loss before taxation - (3,906) - (12,186) (16,092)
Taxation - 1,271 - 1,751 3,022
------------------------------------- -------- -------- -------- -------- ------------- ----------
Loss for the period - (2,635) - (10,435) (13,070)
------------------------------------- -------- -------- -------- -------- ------------- ----------
Everyday Loans Consolidation
Loans at Home Trusttwo Central adjustments 2015 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Total assets - 34,492 - 101,730 (34,199) 102,023
Total liabilities - (3,735) - (11,121) (2,004) (16,860)
------------------------------------- -------- -------- -------- -------- ------------- ----------
Net assets - 30,757 - 90,609 (36,203) 85,163
------------------------------------- -------- -------- -------- -------- ------------- ----------
Capital expenditure - 295 - 64 - 359
Depreciation of plant,
property and equipment - 189 - 9 - 198
Amortisation of intangible
assets - - - 4,030 - 4,030
------------------------------------- -------- -------- -------- -------- ------------- ----------
5. Taxation
Period from
incorporation
Year ended to 31 Dec
31 Dec 2016 2015
GBP'000 GBP'000
---------------------------------- ------------ --------------
Current tax charge/(credit)
In respect of the current year 2,103 (1,251)
---------------------------------- ------------ --------------
Total current tax charge/(credit) 2,103 (1,251)
Deferred tax credit (3,447) (1,771)
---------------------------------- ------------ --------------
Total tax credit (1,344) (3,022)
---------------------------------- ------------ --------------
The difference between the total tax expense shown above and the
amount calculated by applying the standard rate of UK corporation
tax to the profit before tax is as follows:
Period
from incorporation
Year ended to 31 Dec
31 Dec 2016 2015
GBP'000 GBP'000
------------------------------------------------ ------------ -------------------
Loss before taxation (9,342) (16,092)
------------------------------------------------ ------------ -------------------
Tax on loss on ordinary activities at standard
rate of UK corporation tax of 19% (2015: 20%): (1,868) (3,218)
Effects of:
Fixed asset differences (103) -
Expenses not allowable for taxation 132 1,214
Chargeable gains/(losses) 99 -
Adjustment to tax charge in respect of previous
periods 72 -
Adjustment to tax charge in respect of previous
periods - deferred tax (52) -
Adjust closing deferred tax to average rate of
20% 226 -
Changes in unrecognised deferred tax 151 441
Capital allowances in excess of depreciation - 1
Changes in tax rate - (53)
Timing difference - (21)
Tax adjustments arising on date of acquisition - (1,386)
------------------------------------------------ ------------ -------------------
Total tax credit (1,344) (3,022)
------------------------------------------------ ------------ -------------------
Exceptional items are included within 'expenses not allowable
for taxation' due the nature of the transactions, being in relation
to the acquisitions of Loans at Home and Everyday Loans. At 31
December 2016 exceptional items totalled GBP626,000 (2015:
GBP5,542,000)
Reductions in the UK corporation tax rate from 20% to 19%
(effective from 1 April 2017) were substantively enacted on 26
October 2015. A further reduction in the rate from 19% to 17%
(effective from 1 April 2020) was substantively enacted on 6
September 2016. This will reduce the company's future current tax
charge accordingly. The deferred tax liability at 31 December 2016
has been calculated based on the rate of 19% substantively enacted
at the balance sheet date.
6. Loss per share
Period
from incorporation
Year ended to 31 Dec
31 Dec 2016 2015
---------------------------------------------------- ------------ -------------------
Retained loss attributable to Ordinary Shareholders
(GBP'000) (7,998) (13,070)
Weighted average number of Ordinary Shares at
year/period ended 31 December 307,315,588 61,502,789
Basic and diluted loss per share (pence) (2.60p) (21.25p)
---------------------------------------------------- ------------ -------------------
The loss per share was calculated on the basis of net loss
attributable to Ordinary Shareholders divided by the weighted
average number of Ordinary Shares. The basic and diluted loss per
share is the same, as the exercise of share options would reduce
the loss per share and is anti-dilutive.
Period from
incorporation
Year ended to 31 Dec
31 Dec 2016 2015
'000 '000
---------------------------------------------- ------------ --------------
Weighted average number of potential Ordinary
Shares that are not
currently dilutive 5,539 5,539
---------------------------------------------- ------------ --------------
7. Dividends
The Directors have recommended a final dividend in respect of
the year ended 31 December 2016 of 0.9 pence per share (2015: nil)
which will amount to an estimated final dividend payment of
GBP2,853,000. This final dividend is not reflected in the balance
sheet as it is recommended to be paid after the balance sheet
date.
8. Goodwill
GBP'000
------------------------------------------- -------
Cost and net book amount
At incorporation -
Acquisition of subsidiary (Loans at Home) 40,176
------------------------------------------- -------
At 31 December 2015 40,176
Acquisition of subsidiary (Everyday Loans) 91,894
------------------------------------------- -------
At 31 December 2016 132,070
------------------------------------------- -------
The goodwill recognised represents the difference between the
purchase consideration and the net assets acquired (including
intangible assets recognised upon acquisition).
The Group tests goodwill annually for impairment or more
frequently if there are indications that goodwill might be
impaired. The assessment of impairment of goodwill reflects a
number of key estimates, each of which can have a material effect
on the carrying value of the asset. These include:
-- cash flow forecasts which have been extracted from the budget,
which involves inherent uncertainty, particularly in respect
of gross loan values, collections performance and the cost
base of the business;
-- the price earnings multiple applied to the cash flow forecasts;
-- estimates made on the disposal costs of the business; and
-- the weighted average cost of capital ('WACC') applied to determine
the net present value ('NPV') of future cash flows.
The recoverable amount has been determined based on a fair value
less cost to sell calculation. That calculation uses cash flow
projections based on financial budgets approved by management
covering a three year period to 31 December 2019, disposal costs
have been estimated at 2% and a discount rate (WACC) of 12% used
for the Group. The Directors have estimated the discount rate using
post-tax rates that reflect current market assessments of the time
value of money and the risks specific to the market. None of the
goodwill is tax deductible.
Loans at Home goodwill impairment assessment: Considering the
key estimates above, the Group has identified that the following
movements, which may necessitate an impairment charge to the
carrying value of goodwill:
-- a 3% reduction in forecast 2019 earnings;
-- a 3% reduction in the price earnings multiple;
-- an increase in the disposal costs to 5.5%; and/or
-- an increase in the WACC to 14%.
Everyday Loans goodwill impairment assessment: It would require
a movement of greater than 20% in all of the judgements and
estimates to give rise to a potential impairment charge to the
carrying value of goodwill recognised on the Everyday Loans
acquisition.
At 31 December 2016 the fair value less cost to sell of the
goodwill was in excess of its carrying amount by GBP36.1m at
Everyday Loans (2015: n/a) and GBP2.3m at Loans at Home (2015:
GBP51.2m) when applying the lowest valuation as specified in the
accounting policies.
9. Intangible assets
Customer
lists Agent network Brand Broker relationships Technology Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ -------- ------------- -------- -------------------- ---------- --------
Cost
At 1 January 2016 17,312 540 297 - - 18,149
Additions through acquisition 2,050 - 1,497 4,233 6,227 14,007
------------------------------ -------- ------------- -------- -------------------- ---------- --------
At 31 December 2016 19,362 540 1,794 4,233 6,227 32,156
------------------------------ -------- ------------- -------- -------------------- ---------- --------
Amortisation
At 1 January 2016 3,869 99 62 - - 4,030
Charge for the year 7,856 257 435 1,129 1,038 10,714
------------------------------ -------- ------------- -------- -------------------- ---------- --------
At 31 December 2016 11,725 356 497 1,129 1,038 14,744
------------------------------ -------- ------------- -------- -------------------- ---------- --------
Net book value
At 31 December 2016 7,637 184 1,297 3,104 5,189 17,412
------------------------------ -------- ------------- -------- -------------------- ---------- --------
At 31 December 2015 13,443 441 235 - - 14,119
------------------------------ -------- ------------- -------- -------------------- ---------- --------
Intangible assets include intangibles in respect of the customer
list and agent relationships at Loans at Home (formerly
Loansathome4u) and acquisition intangibles in respect of the
customer list, broker relationships and credit decisioning
technology at Everyday Loans and the Everyday Loans and Trusttwo
brand.
The fair value of the customer list of Loans at Home and
Everyday Loans on acquisition has been estimated by calculating the
Net Present Value (NPV) of the discounted cash flows from each new
re-loan provided to this, discrete set of known customers. The
Board of Directors will re-calculate the NPV at each future
accounting date using the same assumptions, limited to the original
known customer lists.
The fair value of Loans at Home's agent relationships on
acquisition has been estimated by valuing the cost to set up a
similar network of trained agents.
The fair value of Everyday Loans' broker relationships on
acquisition has been estimated by calculating the NPV of the
discounted cash flows from the cost avoided each year due to having
the broker relationships in place on new loan volumes written by
existing brokers. The Board of Directors will re-calculate the NPV
at each future accounting date using the same assumptions, limited
to the then existing brokers.
The fair value of Everyday Loans' credit decisioning technology
on acquisition has been estimated by assessing the likely
commercial level of royalties that would be payable to a third
party were the technology licenced rather than owned, calculated as
a percentage of forecast revenues and discounted to the date of the
transaction. The Board of Directors will assess the technology for
impairment using the same methodology at each future accounting
date.
The fair value of the Loans at Home's brand (which at
acquisition was loansathome4u) and Everyday Loans' brand on
acquisition has been estimated by assessing the likely commercial
level of royalties that would be payable to a third party were the
brand licenced rather than owned, calculated as a percentage of
forecast revenues and discounted to the date of the transaction.
Due to rebranding, the loansathome4u brand to Loans at Home, the
intangible asset was written off during the period. The Board of
Directors will assess the Everyday Loans brand for impairment using
the same methodology at each future accounting date.
10. Amounts receivable from customers
2016 2015
GBP'000 GBP'000
---------------------------------- -------- --------
Credit receivables 204,775 30,335
Loan loss provision (24,362) (1,923)
---------------------------------- -------- --------
Amounts receivable from customers 180,413 28,412
---------------------------------- -------- --------
Customer receivables originated by the Group are initially
recognised at the amount loaned to the customer plus directly
attributable costs. Subsequently, receivables are increased by
revenue and reduced by cash collections and any deduction for
impairment. The Directors assess on an ongoing basis whether there
is objective evidence that customer receivables are impaired at
each balance sheet date.
The movement on the loan loss provision for the period relates
to the provision at Loans at Home for the year and Everyday Loans
since the date of acquisition. The amounts receivable from
customers were recognised at fair value (net loan book value) at
the date of acquisition, the amounts receivable are subsequently
measured at amortised cost net of any impairment.
Analysis of overdue receivables from customers
2016 2015
GBP'000 GBP'000
Not past due or impaired 152,464 13,538
Past due but not impaired 21,599 7,819
Impaired 6,350 7,055
-------------------------- -------- --------
180,413 28,412
-------------------------- -------- --------
2016 2015
GBP'000 GBP'000
---------------------------------------- -------- --------
Loans at Home(1) past due not impaired:
One week overdue 6,278 4,571
Two weeks overdue 2,129 1,696
Three or four weeks overdue 1,879 1,552
---------------------------------------- -------- --------
10,286 7,819
---------------------------------------- -------- --------
(1) Loans at Home make weekly collections.
Everyday Loans(2) past due not impaired:
Up to one month overdue 11,313 -
11,313 -
----------------------------------------- ------
(2) Everyday Loans make monthly collections. There is no
comparable information for Everyday Loans as they were acquired on
13 April 2016.
Analysis on movement on loan loss provision
GBP'000
-------------------- -------
At incorporation -
Charge for the year 3,896
Unwind of discount (1,973)
-------------------- -------
At 31 December 2015 1,923
Charge for the year 24,928
Unwind of discount (2,489)
-------------------- -------
At 31 December 2016 24,362
-------------------- -------
The average EIR used during the year ended 31 December 2016 for
Loans at Home was 316% (2015: 328%) and for Everyday Loans was
45.0% (2015: n/a).
11. Deferred tax liability
GBP'000
--------------------------------------------------- -------
At incorporation -
Recognition of intangible assets at acquisition(1) (4,828)
Current year credit 1,771
--------------------------------------------------- -------
At 31 December 2015 (3,057)
Recognition of intangible assets at acquisition(1) (7,551)
Current year credit 3,815
--------------------------------------------------- -------
At 31 December 2016 (6,793)
--------------------------------------------------- -------
(1) Refer to note 12
The deferred tax liability was recognised on the intangible
assets upon acquisition of Loans at Home and of Everyday Loans. The
intangible assets will be amortised in future periods for which tax
deductions will not be available.
The deferred tax liability is attributable to temporary timing
differences arising in respect of:
2016 2015
GBP'000 GBP'000
------------------------------------ -------- --------
Accelerated tax depreciation (163) (115)
Recognition of intangible assets (6,366) (2,909)
Other short term timing differences (258) (10)
Other losses and deductions (25) -
Property revaluation - (23)
------------------------------------ -------- --------
Net deferred tax liability (6,793) (3,057)
------------------------------------ -------- --------
For the year ended 31 December 2016 the Company has unused tax
losses of GBP154,000 (2015: GBP1,822,000) available for offset
against future profits. However, due to the uncertainty over the
likelihood of future profits at the Company level, the deferred
asset has not been recognised on the Company or Consolidated
statement of financial position.
12. Acquisition of Everyday Loans
On 13 April 2016, the Group obtained control of the Everyday
Loans Holdings Limited group, which consists of Everyday Loans
Holdings Limited, Everyday Loans Limited and Everyday Lending
Limited. The Group obtained control through the purchase of 100% of
the share capital. The Everyday Loans group acquisition satisfies
two of Non-Standard Finance plc's target sectors, branch-based
unsecured lending and guaranteed loans (Trusttwo).
The fair values of the identifiable assets and liabilities of
Everyday Loans as at the acquisition date were as follows:
Amounts
recognised
at acquisition Fair value
date adjustments Total
GBP'000 GBP'000 GBP'000
----------------------------------------- --------------- ------------ --------
Intangible assets(1) - 14,006 14,006
Property, plant and equipment 563 - 563
Amounts receivable from customers(2) 115,563 23,749 139,312
Trade receivables 4,259 - 4,259
Cash and cash equivalents 1,807 - 1,807
Trade and other payables (7,342) - (7,342)
Corporation tax liability (1,949) - (1,949)
Deferred tax liabilities(3) - (7,551) (7,551)
----------------------------------------- --------------- ------------ --------
112,901 30,204 143,105
Goodwill 91,895
----------------------------------------- --------------- ------------ --------
Total consideration 235,000
----------------------------------------- --------------- ------------ --------
Satisfied by:
Cash and shares 235,000
----------------------------------------- --------------- ------------ --------
Net cash outflow arising on acquisition:
Cash consideration 215,000
Share consideration 20,000
Cash and cash equivalents acquired (1,807)
Corporation tax credit (1,864)
Other acquired asset (545)
----------------------------------------- --------------- ------------ --------
230,784
----------------------------------------- --------------- ------------ --------
1 GBP2,050,000 has been attributed to the fair value of Everyday
Loans' customer list GBP4,233,000 to the broker relationship,
GBP1,447,000 to the Everyday Loans brand and GBP49,000 to the
Trusttwo brand and GBP6,227,000 to technology.
2 An adjustment to receivables of GBP23,749,000 has been made to
reflect the fair value of the receivables book at the acquisition
date. Refer to note 10.
3 Deferred tax liability GBP7,551,000 recognised on the
intangibles and the fair value adjustment of the receivable book at
acquisition. Refer to note 11.
Everyday Loans (including Trusttwo) contributed GBP38,929,000 to
the Group's revenue and GBP12,327,000 profit before tax (before
fair value adjustments) to the Group's operating profit for the
period from the date of acquisition to the year ended 31 December
2016.
The goodwill of GBP91.9m represents the benefit of the Group's
synergies available from the acquisition in respect of collections
and distribution channels.
The fair value measurement of acquired assets is based upon
financial forecasts, which are categorised as level 3 within the
IFRS 13 fair value hierarchy.
Acquisition of Loans at Home
On 4 August 2015, the Group obtained control of SD Taylor
Limited, trading as Loans at Home (formerly Loansathome4u) through
the purchase of 100% of the share capital.
A detailed conversion of Loans at Home's financial statements,
to align accounting policies, has been completed post-acquisition
which reduced Loans at Home's net assets on acquisition by
GBP5,956,000, principally in respect of higher impairment
provisions due to the impact of a more conservative approach to
recognising impairment.
The fair values of the identifiable assets and liabilities of
Loans at Home as at the acquisition date were as follows:
Amounts
recognised
at acquisition Fair value
date adjustments Total
GBP'000 GBP'000 GBP'000
----------------------------------------- --------------- ------------ --------
Intangible assets(1) - 18,149 18,149
Property, plant and equipment 1,627 - 1,627
Inventories 9 - 9
Amounts receivable from customers(2) 22,591 5,882 28,473
Trade receivables 277 - 277
Cash and cash equivalents 1,296 - 1,296
Trade and other payables(3) (2,040) (732) (2,772)
Deferred tax liabilities(4) (22) (4,806) (4,828)
----------------------------------------- --------------- ------------ --------
23,738 18,493 42,231
Goodwill 40,176
----------------------------------------- --------------- ------------ --------
Total consideration 82,407
----------------------------------------- --------------- ------------ --------
Satisfied by:
Cash 82,407
----------------------------------------- --------------- ------------ --------
Net cash outflow arising on acquisition:
Cash consideration 82,407
Cash and cash equivalents acquired (1,296)
----------------------------------------- --------------- ------------ --------
81,111
----------------------------------------- --------------- ------------ --------
1. GBP17,312,000 has been attributed to the fair value of Loans
at Home's customer list, GBP540,000 to the agent network and
GBP297,000 to the brand.
2. An adjustment to receivables of GBP5,882,000 has been made to
reflect the fair value of the receivables book at the acquisition
date. Refer to note 10.
3. An adjustment of GBP732,000 to accruals for a recognised
dilapidations provision on the properties owned by Loans at
Home.
4. Deferred tax liability GBP4,806,000 recognised on the
intangibles and the fair value adjustment of the receivable book at
acquisition. Refer to note 11.
The goodwill of GBP40.2m represents the benefit of the Group's
synergies available from the acquisition in respect of collections
and distribution channels.
The fair value measurement of acquired assets is based upon
financial forecasts, which are categorised as level 3 within the
IFRS 13 fair value hierarchy.
13. Share capital and share premium
On incorporation, 8 July 2014, the issued share capital of the
Company was GBP1 consisting of one Ordinary Share, fully paid
up.
On 5 November 2014, the ordinary share of GBP1 was subdivided
into 20 ordinary shares of GBP0.05 each.
On 2 December 2014, the share capital was increased by the
issuance of 999,980 Ordinary Shares of GBP0.05 each at par to John
van Kuffeler in settlement of a liability of GBP49,999.
On 4 February 2015 the share capital was further increased by
the issuance of 1,960,527 Ordinary Shares of GBP0.05 each at a
premium of GBP0.33 each to John van Kuffeler, Nick Teunon, Miles
Cresswell-Turner, Robin Ashton and Charles Gregson.
On 19 February 2015, the share capital was further increased by
the floatation of the Company and issuance of 102,323,918 Ordinary
Shares of GBP0.05 each at a premium of GBP0.95 each.
On 7 January 2016, the share capital was increased by the
issuance of 188,235,825 Ordinary Shares of GBP0.05 each at a
premium of GBP0.80 each.
Upon completion of the acquisition of the Everyday Loans Group
from Secure Trust Bank plc on 13 April 2016, the share capital was
further increased by the issuance of 23,529,412 Ordinary Shares of
GBP0.05 each at a premium of GBP0.80 each to Secure Trust Bank
plc.
All shares in issue are ordinary 'A' shares consisting of
GBP0.05 per share. All shares are fully paid up.
The Company's share capital is denominated in Sterling. The
Ordinary Shares rank in full for all dividends or other
distributions, made or paid on the ordinary share capital of the
Company.
Share movements
Number
--------------------------------- -----------
Balance at date of incorporation -
Shares issued during the period 105,284,445
--------------------------------- -----------
Balance at 31 December 2015 105,284,445
Shares issued during the year 211,765,237
------------------------------ -----------
Balance at 31 December 2016 317,049,682
------------------------------ -----------
14. Net cash used in operating activities
Period from
incorporation
Year ended to
31 Dec 2016 31 Dec 2015
GBP'000 GBP'000
------------------------------------------------- ------------ --------------
Operating loss (5,838) (16,162)
Taxation paid (1,341) (350)
Depreciation 690 198
Amortisation of intangible assets 10,714 4,030
Fair value unwind on acquired loan book 8,342 5,456
(Profit)/loss on disposal of property, plant and
equipment (363) 51
Decrease in inventories 3 6
Increase in amounts receivable from customers (21,039) (5,394)
Increase in receivables (7,757) (15,217)
(Decrease)/increase in payables (6,952) 17,850
------------------------------------------------- ------------ --------------
Cash used in operating activities (23,541) (9,532)
------------------------------------------------- ------------ --------------
Appendix - Regulatory overview
During 2016 there were a number of regulatory developments that
may have a bearing on the Group's activities and business
operations in the future. Some of the more pertinent developments
are summarised below.
-- On 26 May 2016 the FCA responded to the Competition and Markets
Authority (CMA) recommendations on high-cost, short-term
credit (HCSTC) and stated that it would make only minor changes
to its suggested rules in this area. The new rules came into
force on 1 December 2016.
-- On 30 June 2016 new rules on dispute resolution came into
force extending the length of time that firms have to handle
complaints from "next business day" to the close of business
three days after the date of receipt. All complaints must
be reported within three business days.
-- On 25 October 2016 the FCA announced a consultation on proposed
guidance setting out its proposed interpretation of the law
in relation to guarantor loans. This guidance was finalised
on 19 January 2017 and the FCA has confirmed that there is
no requirement for a statutory default notice to be issued
where payment is requested of (not demanded), or volunteered
by a guarantor and continuous payment authority can be used
against the guarantor provided notice is given sufficiently
in advance (five working days is suggested) to afford them
the opportunity to object/cancel the CPA.
-- On 29 November 2016, the FCA issued a call for input to inform
further work on high-cost credit, including a review of the
HCSTC price cap. Non-Standard Finance plc has submitted its
views to the FCA.
-- The FCA published its thematic review on early arrears management
in unsecured lending in December 2016. Its findings were
that many firms are improving the way they deal with customers
in early arrears. However, in some areas consumer credit
firms still need to improve their practices.
-- Also in December 2016 the FCA launched a consultation on
the future funding of the Financial Services Compensation
Scheme (FSCS) and has also launched a consultation on a number
of specific changes to its scheme rules. One proposal is
that the FSCS should be extended to cover UK-based debt management
firms and that this should be funded by a levy on consumer
credit firms. According to the FCA and assuming an annual
requirement of GBP45m, this would equate to a levy of 0.22%
of annual income on all consumer credit firms.
-- As at 31 March 2016 the FCA had authorised 30,309 consumer
credit firms and a further 3,544 Interim Permissions were
still awaiting to complete the process. In home collected
credit, over 386 firms had been authorised as at 31 March
2016(1) .
(1) Information from FCA Data Bulletin (Issue 6) June 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
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March 03, 2017 02:00 ET (07:00 GMT)
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